The Center for Data Innovation sat down with Eric Seufert, a media strategist and quantitative marketing expert. Mr. Seufert runs Mobile Dev Memo, a mobile advertising and freemium monetization trade blog, and QuantMar, a knowledge-sharing platform for quantitative marketers. He discussed common misconceptions around online advertising, the damage that restrictive regulation wreaks particularly on small businesses, and offered insights on the ongoing debate to ban certain forms of targeted advertising in the European Union’s Digital Services Act.
Benjamin Mueller: What do you see as the key misconceptions among policymakers in the debate about restricting targeted advertising?
Eric Seufert: There are two, the most fundamental of which is: ad tech doesn’t provide real value, and therefore regulating it away, or severely crippling it, won’t impact the Internet economy and is the obvious, sensible thing to do. This is demonstrably false: we can see through ARPU (average revenue per unit) and general growth metrics for ad tech platforms, given their advertisers skew towards small businesses, that ad tech helps businesses reach relevant audiences and is the engine for growth for the open Internet. There’s very much a tradeoff involved in enacting privacy regulation and restricting the data that can be shared across contexts between advertisers and ad platforms: the less data available to ad platforms, the less relevant ads they will be able to expose to consumers, and the less effective advertisers’ campaigns will be at driving revenue. Reasonable people can disagree as to where on the graph of “Data Transparency” plotted against “Commercial Advertising Efficiency” a line should be drawn so as to protect consumer privacy. But it’s factually incorrect to claim that these two properties are unrelated and uncorrelated—that revoking any and all flow of user data between advertisers and ad platforms would have no impact whatsoever on the internet economy. We’ve seen the impact that Apple’s privacy measures have wrought on the digital advertising ecosystem and the businesses that rely on it for growth.
The second misconception is that consumers broadly dislike ads. There exists an enormous amount of research to refute this. What consumers dislike are irrelevant, untargeted ads. Advertising is the economic engine of the internet economy, and especially the mobile economy. If consumers hated ads, the freemium model wouldn’t dominate on mobile: developers would have found another business model to utilize in 1) reaching users and 2) monetizing their properties. It’s obvious that, to whatever extent consumers are hostile to advertising, they are enamored of “free” to a greater magnitude, and it’s impossible to have one without the other.
Mueller: The EU is in the final stages of discussing a ban on online ads targeting minors. What are the potential unintended consequences of such a move?
Seufert: If any regulation imposes punishments on companies for not knowing very specific things about their users—e.g., knowing with absolute certainty that they are adults—then the platforms with the most data about their users will benefit on a relative basis from that regulation. Targeting ads to children is a practice that should be ended, absolutely, through regulation. But the degree to which a developer, outside of the very largest online platforms, can know that a person is who they say they are is limited. Developers should be required to prevent ads from being targeted to children to the best of their abilities, but requiring that a developer knows to an absolute certainty that any user is not a minor before targeting ads to them will simply destroy the ability for small platforms and publishers to target any ads, while gifting the largest platforms with the ability to do so unperturbed. Again, I want to reiterate: ads should not be knowingly targeted to children. Any regulation should introduce a framework that developers can follow in determining whether a user is an adult or not, and that framework should not privilege the largest platforms that collect the most data about their users. Paradoxically, instituting a very hard line on targeting related to age will simply incentivize developers to extract even more data from users. Rather, a common framework should be proposed that puts all developers on equal footing.
Mueller: What technical developments are taking place in the targeted ads space that might make concerns around “surveillance advertising” redundant?
Seufert: There are a number of interesting initiatives being pursued that allow for the preservation of advertising efficiency while also protecting consumer privacy. Many of these approaches require that all user data utilized in ads targeting be kept “on device,” or in the custody of the user at all times, such that their data cannot be siphoned away by ad tech middlemen. This on-device paradigm is often paired with techniques like federated learning that push ads targeting models onto devices, rather than pull that data from devices onto advertising servers as in the current paradigm, to ensure that user data cannot be leaked. Multi-party computing is another innovative approach that combines encryption techniques with a clear partition between first and third-party contexts such that no party in the multi-party constellation of ad tech services and advertisers has transparency around any other party’s data.
Mueller: How might the European digital economy be affected by an overly restrictive ban on targeted advertising?
Seufert: Ultimately, it is small and medium-sized businesses (SMBs) that have benefited most from advancements in digital advertising technology over the past several years—this is evident in the composition of advertiser pools on platforms like Google and Meta (formerly Facebook). I do believe that the pendulum has swung too far in the direction of near-total consumer data transparency and that regulation is needed to correct for that, if to achieve nothing else but to rebuild consumer trust in digital platforms. But overly draconian and punitive regulation will be felt disproportionately by the small businesses that have thrived as a result of the proliferation of efficient ads targeting technologies. Small businesses will have a more obstructed path to reaching relevant customers and will wither as a result—this is the nature of “direct response” advertising, whereby advertisers optimize their campaigns against specific outcome goals like purchases and registrations, versus “brand” advertising, which is mostly the terrain of very large corporations.
Mueller: Do you think targeted advertising has a future, and if not, what will replace the ads-funded business models that many websites rely on?
Seufert: I think personalized advertising should have a future given the economic value it delivers to society. Personalized advertising empowers small businesses and gives them the agency to foster growth; it’s potentially the most small-d democratic commercial apparatus that has ever existed, given the ease of use of the largest digital advertising platforms. And personalized advertising is a public good: it allows publishers to monetize their properties without needing to extract explicit purchases from consumers, it affords free access to content to consumers, and it provides advertisers with a direct path to product adoption.
